SOTU: Obama's "Automatic IRA" Plan Could Make Bush's Wildest Dreams Come True
In tonight’s State of the Union address, President Barack Obama is expected to propose what’s generally being called an “automatic IRA.” This scheme for increasing individual retirement savings is being touted as a "common sense" approach to the pension crisis, a "third way" that enjoys broad bipartisan support. But lurking just beneath the surface of this popular proposal is a potentially massive gift to Wall Street--and possibly, a back-door route to undermining Social Security in favor of private investments.
Under the automatic IRA plan, the government would help set up a system of individual retirement accounts in which workers would be automatically enrolled if their employers don’t offer their own 401Ks. A minimum amount of pre-tax earnings–under current proposals, 3 percent–would automatically be deducted from employees’ pay and direct-deposited into their accounts. Individuals could increase the amount of the automatic deposits, or they could opt-out altogether. They would also have some choice about where to place their investments; otherwise, it would automatically be placed in what planners are calling a “diversified portfolio.”
On the surface, it sounds like a sensible plan. AARP is supporting it, and says it could help some 50 million of the 75 million Americans whose employers offer no retirement plan. It was developed through a rapprochement between the right and what passes for the left: The idea emanates from a group called the Retirement Security Project (RSP), led by David John of the Heritage Foundation, who hammered out a joint scheme with William Gale of the Brookings Institution. It’s supported by the White House, and expected to breeze through Congress. The publication Life and Pensions reported earlier this week: